Real estate returns in the Eurozone are expected to be around zero this year, a report by UBS global asset management said today.
The Swiss group predicts that while the UK, Spain and Ireland saw rapid prices declines in property values last year, it expected prices falls to be more widespread across Europe in 2009.
Gunnar Herm, head of European real estate research for UBS, said the European market would be impacted by a drop off in demand in the occupational markets and an increase in supply, which will lead to landlords offering increased incentive packages to fill space.
Herm said: ‘The demand for space for occupation is derived from demand in the real economy and, with broadly weakening demand, we expect the demand for space to fall.’
It also said that, due to the scarcity of debt, highly leveraged investors may not be able to refinance their portfolios creating opportunities for equity investors. It favoured retail, particularly prime retail warehouses, large format Town Centre shops and shopping centres, as investments for those able to buy.
Hern said: ‘We believe that well-thought-out, tentative steps back into the market in 2009 are likely to be rewarded but that the extent of these opportunities is unlikely to be widespread, meaning strong stock selection skills will be in focus.’
UBS said that although property returns in the UK are predicted to be zero but ‘there is a strong possibility that this could be proven to be too optimistic.’